Should the Debt Ceiling be Raised Without Spending Cuts?

Although the death of Osama Bin Laden has monopolized the news since Sunday night, lurking just behind the front page is big financial news–the debt ceiling. The debt ceiling caps how much the federal government can borrow and is currently set at $14.294 trillion. Let’s look at the number with all the zeros added in–$14,294,000,000,000. As we near that limit, our good friends in Washington have started bickering over whether to raise the debt ceiling.

Basically, some Republicans have said they will only agree to raise the debt ceiling if spending cuts are implemented at the same time. Democrats retort that a failure to raise the limit would plunge the country into default and financial chaos. Basically, the politicians are once again talking at each other, rather than with each other.

But the question is an important one–should the debt ceiling by raised without some steps being taken to reduce our spending? And if it should, what’s the point of the debt ceiling? Let’s take a quick look at the history of the debt ceiling, and then we’ll come back to these questions.

Brief History of the Debt Ceiling

Before 1917, Congress had to approve each time the government went into debt. In 1917, a law was passed that allowed the government to go into debt without Congressional approval, but only up to a certain limit. And thus, the debt ceiling was born. In 1917, the limit was $11.5 billion, according to a CNN report. Since 1917, the debt ceiling has grown to its current point just north of $14 trillion, as this chart from the CCN report depicts:

The Debt Ceiling in a Perfect World

In a perfect world, reaching the limit on federal government debt would prompt politicians to come together to solve our financial crisis. After all, doesn’t that seem to be the point of the limit in the first place? If the purpose of setting a debt limit is not to control spending, then what’s the purpose? If the only consequence of reaching the debt ceiling is to raise it again, then why have it in the first place? Let’s just set the limit to something we’ll never each in our lifetime and be done with it.

Should Spending Cuts be a Precondition to Raising the Debt Ceiling

And that brings us to the key question–should spending cuts be part of the debate? My initial reaction to this question was no. The discussion over spending cuts should occur as part of the federal budget debate. And in a perfect world, that’s what would happen. Unfortunately, politicians have proven unwilling to act until they are forced to, at least when it comes to our money.

So now, I’m for ANYTHING that forces our lovely politicians to stop playing politics and start controlling spending. Shut down the government (at least non-essential personnel) if that’s what it takes. And yes, hold the debt ceiling hostage to bring reluctant politicians to the table. We are long past playing nice.

And in case there was any doubt, check out this chart comparing our debt with gross domestic product (via Wikipedia):

Osama Bin Laden and the Debt Ceiling

As a final note, it’s worth pointing out that Bin Laden’s attack on the United States wasn’t just on 9/11. In fact, the economic impact of those horrific moments will be felt for a long time to come. As Ezra Klein of the Washington Post noted,

Bin Laden, according to Gartenstein-Ross, had a strategy that we never bothered to understand, and thus that we never bothered to defend against. What he really wanted to do — and, more to the point, what he thought he could do — was bankrupt the United States of America. After all, he’d done the bankrupt-a-superpower thing before. And though it didn’t quite work out this time, it worked a lot better than most of us, in this exultant moment, are willing to admit.

So what’s your opinion? Should spending cuts be a precondition to raising the debt ceiling?

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

I think if we want to have an effective real debt ceiling it would require more than just a simple vote of congress to change it. The debt ceiling we have seems to be mostly useless cause the legislature can just vote to move it up again and again.

The debt ceiling should NOT be raised without some substantive changes in spending. Period! Although the timeline has been given a little breathing room because of unexpected tax receipts, congress should use the additional few weeks to make some serious, and painful spending cuts.

We certainly can’t tax our way into prosperity, but we CAN make a serious attempt to live within our means…..

I think that we need to stop raising the debt ceiling and start making some changes in the government. However, any politician who does so will be voted out so fast their head will spin. We need to start funding SS better, we need to increase the age in which full SS can be taken, and remove the cap of SS. The Bush tax cuts, as much as I like keeping my income, need to be removed or changed. We need to make cuts in our expenses as well. For example, make food stamps more like WIC and get rid the ability to buy junk food on the tax payers dime. Let us go over every cent in budget and see where we can cut. Would it be better to raise the fix rate for the I bond and move some of our debt from China to the American people? Could that save us some money? I am sure, if the American people worked together we could find places to cut without hurting the American people in the processes.

The debt ceiling debate will not have a quick resolution. Congress and the American economy will then continue to muddle along until a more effective and supported debt reduction plan is put in place. The game of political football will resume once again, with the biggest damage to the folks of this great nation.

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